Hacking Netflix reader Aron posted a story on The Motley Fool with his analysis of the Netflix "churn" numbers. He makes an interesting argument:

Netflix's churn formula is unprecedented in my research. There is not a single churn calculation method used by all subscription-type companies, but there is no other company I could find that uses this particular one. Since a new trial subscriber that fails to convert to a paying subscriber is counted as a churned subscriber, Netflix seeks to include all new trial subscribers in the denominator of their formula. There should be no ideological problem with this goal. However, in implementing this goal and attempting to remain simple, they over-simplified. There is a flaw in the formula which leads to increasing inaccuracy as true underlying churn increases and/or growth rate increases. Netflix has both a high churn and high growth rate. The conclusions I have found are two-fold:

1) An accurate measurement of churn shows an increase from Q403 to Q104, not a decrease.

2) In absolute terms, the churn measurement is roughly 20% inaccurate to the low side for Q104.

I've seen several different views on how Netflix calculates churn. What do you think?

BusinessWeek Online has an interesting story about Netflix, "Netflix: Moving Into Slo-Mo?." They do a good job of summing up why the market slammed Netflix since the earnings announcement, and point out that Netflix could be at risk:

Combine strong growth with weaker-than-expected
financials, and chances rise that Netflix will be
acquired. Possible buyers include online players such
as Amazon.com (AMZN ), and telcos like Verizon
Communications (VZ ). Amazon sells DVDs and, like
Netflix, gets a competitive edge from customer
ratings. Verizon, which is battling cable-TV
companies, could use Netflix to enter the
video-on-demand business. Both companies declined
comment.

Here's something I didn't know:

Piper Jaffray's Safa Rashtchy says
Hastings, who has been selling 10,000 shares a week,
should buy some Netflix stock to rebuild credibility
with investors. The CEO, who owned 5.7 million shares
as of March, declined the invitation. "I'm not trying
to convince the market fast -- I'm trying to build a
big stable business," he says.

Variety.com has has an interesting story entitled, "B'buster Busts Move" (subscription required). The story talks about the $90 million they will spend to fight Netflix and Walmart and the tough financial road ahead for Blockbuster:

But investors should get ready for a whole lot of pain
between now and then. Net income at the company
plummeted nearly 25% in the quarter to $46.8 million
from $61.2 million in the same quarter last year.
Same-store sales decreased 4.4% from last year, with
rental revenues dropping 6.4%.

Antioco said the company expects third-quarter profits
to fall again in the single-digit percentage range and
full-year earnings to fall as much as 30%. "There will
be short-term pain and sacrifice," said Antioco. "But
we are determined to emerge from this crisis as a
highly profitable entertainment brand."

Brian Baily wrote about the elusive Netflix TV commercial on his blog, Leave it Behind:

Here's my version. Same parents sitting on the floor with their child. Child begins to struggle to her feet and start walking. Father stands up and says, somewhat panicked, "What time is it?" Wife looks confused as she struggles to setup the video camera. "11:45. Why?"

"I have to take the movies back. They're due at noon."

Does anyone know when the Netflix commercials will be shown or where I can see them online? I think we owe them the courtesy of watching them since they spent $20 million on them (Engadget's estimate).

Reuters posted a story from the Hollywood Reporter where John Antioco, Blockbuster Chairman & CEO, promised to take the fight to Netflix:

"Two million (customers) have spoken," he said, referring to Netflix's subscriber base. "We can't continue to allow our customers to erode away from us. We are not going to ignore these folks."

I disagree. They should ignore Netflix publicly. This is like McDonalds fighting Burger King, or Budweiser fighting Miller or Sam Adams -- it's stupid. Blockbuster is giving Netflix credibility and free advertising by acknowledging they exist. They should fight hard and compete in unique ways (like the 2 free in-store rentals). Never mention the much smaller competitor.

I bet the Netflix people are celebrating.

Tidbits from the story:

Blockbuster estimates 30% of Netflix subscribers were Blockbuster customers. I disagree. I bet most of the 2 million Netflix subscribers got sick of late fees.

They can't deliver movies overnight like Netflix at this point, but are focused on 2 day delivery. (I'm getting 1 - 2 day from Netflix).

He's predicting 10% of the customer base and 20% of the revenue will come from subscriptions.

They won't launch the site until it's ready, which could be Q4.

Subscribers of Blockbuster's in-store subscription rent about 10 movies per month, compared with 7-8 for Netflix, making the slightly more expensive Blockbuster offering a better value, according to Antioco.

Open up. Google did it, Amazon did, Apple did it, Netflix— expose your API so people out there can use www.netflix.com the way they want to, in new ways, in ways you haven’t imagined. What do I mean by that?

Phillip goes on to suggest RSS feeds for movies, shared "playlists," integration with iTunes, Moviefone and Fandango, and exposure of the Netflix API (an interface for programmers to do cool things with the Netflix data). Amazon & Google have opened up their systems, with hackers and programmers creating all kinds of new and interesting applications (Amazon Web Services Demo Applications).

I agree with Phillip about TV. I have heard about the ads, but I have yet to see them. They have to find cheaper ways to get new subscribers than TV which is bringing the cost of new customers to nearly $40 each.

I think they really need to build out their community efforts. Phillip mentions my struggle to get the PR department at Netflix to treat me as a journalist, and I'm only one of many bloggers that cover Netflix (including Netflix Fan and A Netflix Odyssey). There are millions of Bloggers and Netflix needs to find ways to work with us.

Netflix has a real chance to win at this game. They are smaller and able to turn the ship in new directions a lot faster than the big guys. My only concern at this point is that they will do too well and get bought, leaving us without an innovator.